The American business magnate Warren Buffet’s investment in Apple (AAPL 1.29%) demonstrates a change in the global investment scenario.
Apple is turning out to be a value stock and Buffet is venturing into a domain – technology that he had avoided in the past.
Berkshire Hathaway, owned by Warren Buffet has invested over $1 billion in Apple on May 16th, 2016. The firm is also contemplating of supporting a group to purchase the internet equities of Yahoo (YHOO -0.08%).
Warren Buffet used to stay clear of technology during the dotcom boom of the 1990s. Buffet had stated in 1999, “Our problem – which we can’t solve by studying up – is that we have no insights into which participants in the tech field possess a truly durable competitive advantage.”
The strength of Berkshire Hathaway has always been in understanding when they are functioning within their area of proficiency.
The firm avoids forecasting the long-term business of firms that work in rapidly transforming sectors.
The strategy is based on two facts: Berkshire Hathaway cannot understand which tech firms have a defendable structure around them or the way technology would transform to challenge those benefits.
Apple’s exceptional brand value could be such a defendable structure, though the degree of technological transformation has accelerated since 1999.
There are not many firms that have a business, which is protected from the influence of technology and digitalization.
As the influence of technology on business becomes prevalent, a strategy of waiting to determine the winners’ carries significant risk at present than at any point in the past.
An assessment of the effect of independent automobiles on insurance – a segment in which Buffett has made significant investments through GEICO would reveal that technological transformation is here to stay.
Again, Apple is now the typical value firm that Buffett usually makes his specialty. The firm is repaying the money to shareholders and is generating significant cash flows.
Technology shares, as a domain, are currently a huge portion of the market, consisting of nearly 20% of the S&P 500 index. If investors stay away from technology, then they would be restricting their ranges substantially. That is a matter of concern for Buffet as an investor.
As of now, Buffett’s entry into technology has been successful. The shares of Apple increased by 3.71 percent on May 16th, 2016 after the news came out.
Still, the critical risk outline of technology or its capability to transfer surges of risk to other sectors, is the bigger picture. The products are excellent, but as the Blackberry shareholders can confirm, the opposition and modification can be fierce.